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Freshworks Inc. is scheduled to start trading Wednesday on the Nasdaq in what’s expected to be the biggest public debut in a week jam packed with initial public offerings.
The San Mateo, Calif.-based company, which provides customer experience and management services as well as IT management products, ramped up momentum into its IPO by hiking its expected pricing range on Monday. Freshworks
FRSH,
with a ticker of “FRSH,” now expects to price shares between $32 and $34 apiece, up from a previous forecast of $28 and $32 a share.
With 281.4 million shares outstanding after the offering, or 284.3 million if underwriters exercise all options to cover with overallotments, the company is looking at a valuation of nearly $10 billion should it price at the high end of the range.
Here are five more things to know about Freshworks before it starts trading:
They very much identify as the underdog upstart
With its wide swath of services, Freshworks competes with several established players. In customer experience software, it competes with Salesforce.com Inc.
CRM,
and Zendesk Inc.
ZEN,
as well as Oracle Corp.
ORCL,
and SAP SE AG
SAP,
IT service management competitors include ServiceNow Inc.
NOW,
and Atlassian Corp.
TEAM,
In customer relationship management, or CRM, software, it not only competes with Salesforce but also with Microsoft Corp.’s
MSFT,
Dynamics service.
“Freshworks is the company that wasn’t supposed to win,” said Rathna Girish Mathrubootham, founder and chief executive, in the company’s S-1 filing.
In fact, the original company was all in response to a “poor customer service experience” Mathrubootham had, and the company persevered in a crowded help desk market, beginning in Chennai, India, where it was unlikely to grow a global software-as-a-service company.
“Now, our dream is to be a disruptive player in the CRM market by breaking down the silos of marketing, sales, and customer support with a unified customer cloud,” Mathrubootham said. “And in the future, we dream of breaking the silos of IT and HR, building a unified employee cloud.”
For more than $1 billion, don’t expect any votes
With an offering of 28.5 million shares, and an additional 2.9 million shares to cover overallotments, the company stands to raise up to nearly $1.07 billion.
The offering is for Class A shares, however, adding to the already 252.9 million Class B shares that exist. On top of that, the Class A shares in the offering only hold one vote, while the Class B shares hold 10 votes, so new shareholders will only get about 1% of voting power following offering.
Accel, Tiger Global see big return on decade-long investment
Up until now, Freshworks has already raised $484 million from investors, according to Crunchbase. The first investors were Accel and Tiger Global, which sunk $1 million into Freshworks’ Series A round nearly a decade ago.
From there Accel and Tiger Global have been a part of each funding round, with firms like CapitalG and Sequoia Capital participating in other rounds, last with a Series H round back in 2019 for $150 million, which valued the company at $3.4 billion.
With all those years of funding, Accel owns 25.5% of Class B shares, while Tiger Global, owns 26% respectively.
CapitalG’s investments have yielded an 8.1% stake, while Sequoia has a 12% stake. CEO Mathrubootham holds 6.6% of Class B shares.
Based in San Mateo, designed in India
The company prides itself by not being a Silicon Valley start-up, but it moved its headquarters to the San Francisco Bay Area in 2018 to “blend the art of Indian design with the science of Silicon Valley scaling.”
Of the company’s 4,300 employees, about 3,800, or 88%, work out of various locations in India, “where most of engineering, product design, sales and marketing, customer support, and general and administrative personnel are located.”
Even though, the company reported office closures over the COVID-19 pandemic, it said that it considers “our relations with employees in each geography to be good, and we have not experienced any work stoppages.”
For the six months of 2021, Freshworks said that 58% of its revenue was generated from customers outside North America. The company reported revenue of $168.9 million for the first six months of 2021 for a loss of $9.8 million, compared with $110.5 million and a loss of $57.1 million for the same period in 2020.
For 2020, Freshworks reported revenue of $249.7 million and a loss of $57.3 million, compared with revenue of $172.3 million and a loss of $31.1 million in 2019.
Seeks to capture a piece of an estimated $120 billion market
Using figures from International Data Corp., Freshworks believes it has an addressable market of about $120 billion.
That covers products in CRM, which includes customer service, contact center, salesforce productivity and management, and marketing campaign management products, estimated to be a $76 market by 2025 by IDC. Products in System and Service Management, which includes IT service management, IT operations management, and IT automation and configuration management products, are expected to have a 2025 market of about $44 billion.
Based on Freshworks’ internal data and analysis, the company said it estimates its products have a potential annual market opportunity of $77 billion.
